There are some interesting tidbits that can be found when looking at the average turnover in Croatia during both the positive and negative periods for the stocks traded. In this brief analysis, we looked at how the turnover of Croatian blue chips developed during these periods, and the main differences.
In order to demonstrate this, we took the CROBEX10 index, which is composed of only Croatian blue-chip companies, and as such is a good representation of the largest public companies in Croatia. Afterward, we looked at the periods in which the index grew, as compared to the previous day. We defined these periods as periods of growth, positive periods, or in financial jargon, bullish periods. The same was done for the times of decline, negative returns, or the bearish period. During these times, the turnover of the Croatian blue chips which compose the index was compared. The data provided is from 2021 to 2023 YTD.
As we all know, both 2021 and 2022 were years that could be described in many ways as polar opposites. While 2021 was a year of recovery and strong growth, not just in the region but also the entire world, 2022 started off relatively well, with just elevated inflation posing a problem, something that will later be tackled with higher interest rates by central banks around the world. However, it only started that way, and everything, most predictions for the year could be thrown out of the window after the Russian invasion of Ukraine, the subsequent sanctions on Russia, the energy price increases, and the record high inflation rates. 2022 proved to be a quite negative year for equity markets, with investors around the world scrambling towards alternative asset classes, from real estate, currencies, bonds, art, and crypto, among many, many others.
In this environment then, how did the Croatian blue chips perform in terms of turnover? Since the end of 2020 (December 29 to be exact) there were 529 total trading days in Croatia. And although the sentiment could have been described as cautious at best, especially considering the low returns (in terms of for example, dividends or even general returns on stocks) in Croatia, as well as the ever-present liquidity issues, if we look at the big picture, the index as a whole actually had more days where it gave positive returns than negative. Of course, this type of analysis excludes one important point: even if an index returns 0.5% for 3 consecutive days, but losses 2% on the 4th day, it’s still a net negative. This is only a look at the general data, and as such should be supplemented with returns on the index/stocks by themselves. In general, the CROBEX10 increased on 286 out of those 529 days and decreased on 243 days. Immediately it is apparent that the index had more “green” days than “red”. In fact, in percentage terms, the index increased 54% of the time, while it declined 46%.
So knowing this, how did the turnover of the Croatian blue chips develop in this period?
Average turnover of CROBEX10 constituents since the end of 2020 (EUR)
Source: Bloomberg, InterCapital Research
As we can see in the graph, there are actually some notable differences in returns during both positive and negative days. Podravka has the largest weight in the CROBEX10 index (currently at 21.35% of the total), and had an average turnover during times of growth of EUR 111.4k, while during negative days, its average turnover was EUR 95.3k. This would yield a difference of 16.9% between positive and negative days. Of course, because Podravka makes up so much of the index, it is expected that when it records a large turnover, especially turnover that pushes the Company’s share price up, it will also have a positive impact on CROBEX10, due to the aforementioned weight of Podravka. The next Company with the highest avg. turnover during positive days is Hrvatski Telekom, with an average of EUR 97k, as compared to EUR 91.7k during negative days, marking a difference of 5.5%. Following them, we have Valamar Riviera, with an avg. turnover during positive days of EUR 89.6k, an increase of “only” 0.8%. Next up, we have Atlantska Plovidba, which by itself is a peculiar share. The Company’s share average turnover amounted to EUR 77.2k during the positive days, and EUR 81.5k during the negative, meaning that its turnover is actually 5.2% higher during the negative days. Does this mean that Atlantska Plovidba’s share price also decreased? Not necessarily. In fact, it increased by 125% in the period, by far the highest out of all CROBEX10 constituents, further demonstrating the point mentioned above, that turnover by itself does not tell us much.
Increase/decrease in turnover on positive days as compared to negative days (%)
Source: Bloomberg, InterCapital Research
There are some other noteworthy companies that need to be mentioned here. Končar and AD Plastik recorded an increase in turnover on positive days as compared to negative days of 16.1% and 15.9%, respectively, even though they record a quite low average turnover compared to other CROBEX10 companies.
So what can all of this data show us? It can show us that cumulatively and over a longer time period, periods of growth will always outweigh periods of decline. This is especially true if we look at a basket of shares compared to individual stocks. What this could mean is that continually investing in a diversified portfolio, no matter the environment (as we can see in 2022), will over the longer time period even itself out, and the positive returns will outweigh the negative ones, as the trend of growth is always present, even on a smaller stock exchange such as ZSE.
In 2022, INA recorded sales revenue growth of 56.6% YoY, EBITDA growth of 52.7%, and a net income of EUR 252.5m, an increase of 47.6% YoY.
Starting off with the sales revenue, in 2022 it amounted to EUR 4.66bn, an increase of 56.6% YoY. This was supported by improvements in hydrocarbon prices and product quotations. Breaking this down by segments, in the “Refining and Marketing, including Consumer Services and Retail” segment, by far the largest one, the sales revenue amounted to EUR 4.57bn, an increase of 56.9% YoY. INA notes that the favourable macroeconomic environment was supported by profitable operation on maximum capacity in the peak summer months, which mitigated the risk of lower product availability on the global market driven by the Russian-Ukrainian crisis. Trading activities were mainly focused on competitive crude sourcing, safe and timely product sales and supply, own consumption optimization, and inventory risk management. They also note that they maintained a strong market position on core markets, with both commercial and retail margins under pressure due to government price regulation throughout 2022. Total retail sales volumes amounted to 1,173 kilotons (kt), an increase of 11% YoY, with a significant contribution coming from Croatia (+116 kt) as a result of lifted COVID restrictions and excellent tourist consumption.
The second segment, “Exploration and Production”, recorded a sales revenue of EUR 892.9m, an increase of 73% YoY. This was impacted by higher prices during most of the year, excl. the strong effect of gas price regulation which is only visible as of Q4 2023. Of this revenue, gas sales revenue added EUR 221.7m, Brent price which was 43% higher YoY brought an additional EUR 103.6m of revenue from crude oil and condensate sales, while other products added EUR 20.6m to the overall sales mix. Production was down 4% YoY, as compared to an 8% decrease in 2021 vs. 2020, which INA notes is a strong improvement considering the maturity of its oil and gas fields. This came mainly as a result of an intensive investment campaign.
Next up, we have the operating expenses. In total, they increased by 51% YoY and amounted to EUR 4.34bn. The main drivers of this growth were material expenses, which grew by 64% YoY, to EUR 3.78bn. Inside the material expenses, costs of raw material and consumables, as well as the cost of goods sold (COGS) were the main drivers, increasing by 49% to EUR 1.73bn, and 98% to EUR 1.75bn, respectively. The growth in costs of material and consumables was due to different dynamics of refining operations and higher prices, while higher COGS came because of a price increase and higher imports to ensure market supply. Staff costs only increased marginally in comparison, growing by 5% YoY to EUR 207.9m. As a result of these developments, the EBITDA increased by 53% YoY and amounted to EUR 672.9m. This would mean that the EBITDA margin amounted to 14.43%, a decrease of 0.37 p.p. YoY.
Moving on to the net financial result, it amounted to a negative EUR 16.4m (2021: EUR 12.49m). This came as a result of the following factors: firstly, the net FX loss of EUR 14.7m, as compared to a net FX gain of EUR 1.5m in 2021. Secondly, the interest expense amounted to EUR 11.9m, while the interest income amounted to EUR 1.06m. Finally, other financial net gain amounted to EUR 9.2m in 2022, a decline of 60% YoY. The income tax expense increased significantly in 2022, amounting to EUR 156.3m, an increase of 3.4x YoY. This came as a result of two things. Firstly, the 18% tax rate applied, which means that on an EBT of EUR 408.8m (+98% YoY), INA paid EUR 73.6m in taxes, as compared to EUR 37.2m in 2021. Secondly, the extra profit tax. The extra profit tax refers to the tax proposed by the Croatian government all the way back in September and further discussed and formulated in October/November, to be passed and effective on 21 December 2022. Due to this additional tax, INA had to pay an extra EUR 81.1m (HRK 611m) in taxes in 2022. INA does note that in the entire Group, this tax was only applicable to INA d.d.
As a result of all of these developments, INA recorded a net income of EUR 252.5m, an increase of 47.6% YoY. This would also imply a net income margin of 5.42%, a decrease of 0.33 p.p. YoY. However, excl. special items in 2022/2021, such as the provisions for Ivana D decommissioning of HRK 88m (EUR 11.7m) in 2021, and the impairment and reversal of impairment of assets of HRK 178m (EUR 23.6m) in 2022, as well as the aforementioned extra profit tax, the net profit for the Group would amount to EUR 356.4m, an increase of 95% YoY.
INA Group key financials (2022 vs. 2021, EURm)
Source: INA, InterCapital Research
Lastly, taking a look at the Group’s investments, the total CAPEX for the year amounted to EUR 362m, an increase of 71% YoY. Refining, Marketing, including Consumer Services and Retail’s CAPEX amounted to EUR 234m, an increase of 94% YoY. For the Refining and Marketing, these investments included the Rijeka Refinery Upgrade Project, which has achieved 70% completion, with mechanical completion expected in H1 2022, as well as the CDU energy efficiency upgrade project, and the replacement of condensing turbines with electric drives. Meanwhile, for Consumer Services and Retail, the focus of 2022’s CAPEX was on service station modernization. Finally, in the Exploration and Production segment, CAPEX amounted to EUR 106m, of which, the majority went to Croatia’s Offshore drilling campaign and onshore development activities, with the remainder going to international investments in Egypt and Angola.
As of January 2023, Fondul’s NAV reached RON 14.57bn, which would translate into a NAV per share of RON 2.5723, an increase of 11.1% YoY and a slight increase of 0.1% MoM.
According to the latest Fondul Proprietatea’s NAV report (31 January 2023), Fondul reported a total NAV of RON 14.57bn (EUR 2.96bn), which translates into a NAV per share of RON 2.5723 (EUR 0.5226).
Comparing it on a YoY basis, the total NAV recorded an increase of 17.4%. Nevertheless, compared to December, NAV remained flat.
Fondul Proprietatea’s portfolio structure still remains focused on the power utility generation sector (76.5% of NAV) with Infrastructure (7.3%) and Power & Gas supply and distribution (7.1%) following. This is also why the three most significant holdings, Hidroelectrica, Aeroporturi Bucuresti, and Engie Romania amount to 84.4% of the total NAV of the Fund. However, most of those come only from Hidroelectrica with 76.5% as the biggest holding. In terms of the Fund’s portfolio structure, unlisted equities accounted for the vast majority of NAV, standing at 92.8%. Following them, we have Net Cash & Receivables with 6% and finally listed equities with only 1.2%. Further, we note that during January, no significant changes in Fondul’s portfolio occurred. Also, we remind and emphasize that during the previous month, Fondul liquidated its position in OMV Petrom, which was previously the second biggest holding after Hidroelectrica with 5.6% of the fund’s NAV in the data for November.
Turning our attention toward the share price’s performance, during the month, the Company’s share price remained flat decreasing slightly by 0.5%, ending the month at RON 2.09 per share. The current discount to NAV per share stands at 21.1%.
Fondul Share Price & NAV per Share
Source: Bloomberg, InterCapital